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Financialisation, distribution, growth and crises – long-run tendencies

Author

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  • Eckhard Hein

    (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE))

  • Nina Dodig

    (Berlin School of Economics and Law, and Institute for International Political Economy Berlin (IPE))

Abstract

In this paper we review the empirical and theoretical literature on the effects of changes in the relationship between the financial sector and the non-financial sectors of the economy associated with ‘financialisation’ on distribution, growth, instability and crises. We take a macroeconomic perspective and examine four channels of transmission of financialisation to the macroeconomy: first, the effect on income distribution, second, the effects on investment in capital stock, third, the effects on household debt and consumption, and fourth, the effects on net exports and current account balances. For each of these channels we briefly review some empirical and econometric literature supporting the presumed channels, some theoretical and modelling literature examining the macroeconomic effects via these channels, and finally, we present small models generating the most important macroeconomic effects. We show that, against the background of redistribution of income at the expense of the labour income share and depressed investment in capital stock, each a major feature of financialisation, short- to medium-run dynamic ‘profits without investment’ regimes may emerge, which can be driven by flourishing consumption demand or by rising export surpluses, compensating for low or falling investment in capital stock. However, each type of these regimes, the ‘debt- led consumption boom’ type and the ‘export-led mercantilist’ type, contains internal contradictions, with respect to household debt in the first regime and with respect to foreign debt of the counterpart current account deficit countries in the second regime, which finally undermine the sustainability of these regimes and lead to financial and economic crises.

Suggested Citation

  • Eckhard Hein & Nina Dodig, 2014. "Financialisation, distribution, growth and crises – long-run tendencies," Working papers wpaper23, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
  • Handle: RePEc:fes:wpaper:wpaper23
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    Citations

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    Cited by:

    1. Eckhard Hein, 2015. "Causes and Consequences of the Financial Crisis and the Implications for a More Resilient Financial and Economic System: Synthesis of FESSUD Work Package 3," Working papers wpaper128, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Hein, Eckhard, 2017. "Financialisation and tendencies towards stagnation: The role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007-9," IPE Working Papers 90/2017, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Detzer, Daniel & Herr, Hansjörg, 2014. "Theories of financial crises: An overview," IPE Working Papers 32/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Jesus Ferreiro, 2016. "Macroeconomic and financial sector policies to better serve the economy and society," Working papers wpaper165, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    5. Mark Setterfield & Yun K. Kim, 2016. "Household Borrowing and the Possibility of ``Consumption-Driven, Profit-Led Growth’’," Working Papers 2016_01, University of Massachusetts Boston, Economics Department.
    6. Mark Setterfield & Yun K. Kim, "undated". "Household Borrowing and the Possibility of “Consumption- Driven, Profit-Led Growthâ€," Working Papers Series 39, Institute for New Economic Thinking.
    7. Nina Dodig & Eckhard Hein & Daniel Detzer, 2016. "Financialisation and the financial and economic crises: theoretical framework and empirical analysis for 15 countries," Chapters,in: Financialisation and the Financial and Economic Crises, chapter 1, pages 1-41 Edward Elgar Publishing.
    8. Eckhard Hein, 2016. "Secular stagnation or stagnation policy? Steindl after Summers," PSL Quarterly Review, Economia civile, vol. 69(276), pages 3-47.
    9. Eckhard Hein & Daniel Detzer, 2014. "Coping with imbalances in the Euro area: Policy alternatives addressing divergences and disparities between member countries," Working papers wpaper63, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    10. Eckhard Hein & Daniel Detzer, 2015. "Post-Keynesian Alternative Policies to Curb Macroeconomic Imbalances in the Euro Area," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(2), pages 217-236, June.
    11. Hamid Raza & Bjorn Gudmundsson & Stephen Kinsella & Gylfi Zoega, 2015. "Experiencing financialisation in small open economies: An empirical investigation of Ireland and Iceland," Working papers wpaper84, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    12. Hein, Eckhard, 2016. "Causes and consequences of the financial crisis and the implications for a more resilient financial and economic system," IPE Working Papers 61/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    13. Sergio Lagoa & Emanuel Leao & Ricardo Paes Mamede & Ricardo Barradas, 2014. "Financialisation and the Financial and Economic Crises: The Case of Portugal," FESSUD studies fstudy24, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

    More about this item

    Keywords

    financialisation; distribution; growth; instability; financial and economic crises; Kaleckian models; current account imbalances.;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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